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The European Central Bank has left its benchmark interest rate unchanged at 2 percent for the fourth time in a row, but has raised its growth forecasts for the euro zone.
Thursday’s interest rate decision was in line with economists’ expectations.
In its second upgrade since March 2024, the ECB now expects growth of 1.4 percent in the eurozone this year, up from its last forecast of 1.2 percent in September. The bank’s staff also raised their 2026 GDP forecast to 1.2 percent, up from 1 percent in September. In 2027 and 2028, growth is expected to improve to 1.4 percent.
Thursday’s upgrades came after ECB President Christine Lagarde said last week that the euro zone was “better resilient than we expected in April” when Trump launched his tariff blitz.
Annual inflation in the eurozone, which remained unchanged at 2.1 percent in November, has been within reasonable distance of the ECB’s medium-term target of 2 percent for nine months in a row.
For 2026, the ECB now expects annual inflation of 1.9 percent, compared to the 1.7 percent it previously forecast. The main reason for higher inflation next year is that high price increases in the services sector will decline “slower”, the central bank said.
Service price inflation has been well above the ECB’s overall target of 2 percent over the past four years, and accelerated again to 3.5 percent after the summer.
The euro was little changed immediately after the decision, falling 0.1 percent against the dollar on the day to $1.173.
The ECB’s previous rate cuts, which started in June 2024, have pushed borrowing costs to their lowest level since December 2022.
Swap traders stuck to their expectations that the ECB has ended its rate-cutting cycle, with a slim chance the central bank could raise its benchmark rate at the end of 2026, depending on derivatives prices.
“There is no reason for the ECB to change its policy stance in the short term, either positively or negatively,” said Carsten Brzeski, global head of macro research at ING.
Based on the updated inflation forecasts, Karsten Junius, chief economist at J Safra Sarasin, said the ECB considered its current position “appropriate” and “does not plan to implement another interest rate cut for the insurance sector anytime soon.”
